India has the potential to become the third largest aviation market by 2020 and the largest by 2030, says a recently released report on the Indian aviation sector by the Federation of Indian Chambers of Commerce and Industry and KPMG.
The report, titled ‘Indian Aviation 2014’, was unveiled at the 4th International Exhibition and Conference on Civil Aviation held in Hyderabad from March 12 – 16, 2014.
The Indian civil aviation industry is on a high growth trajectory, albeit with minor hiccups, says the report, adding the industry has ushered in a new wave of expansion driven by Low Cost Carriers, modern airports, Foreign Direct Investments in domestic airlines, cutting edge Information Technology interventions and a growing emphasis on no-frills airports and regional connectivity.
The Indian civil aviation industry is amongst the top 10 in the world with a size of around $ 16 billion.
“In view of the enormous growth prospects of air traffic and substantial investment projections, Indian aviation market offers significant long term opportunities for global aviation players. Indian Government and industry are already working together closely. I am confident, this partnership will be further strengthened and play a critical role in improving regional connectivity and promoting sustainable development of the civil aviation sector in the country,” says Sidharth Birla, President of FICCI.
The report notes that the next generation of aviation growth in India will be triggered by regional airports.
At present, there are around 450 used, un-used, abandoned airports and airstrips spread all over the country. Many states, especially in the east, have started taking pro-active measures to promote air connectivity. The initiatives include reduction in sales tax on Aviation Turbine Fuel, development of no-frills airports, promotion of aviation academies and supportive policies for airlines and tourism. The state of West Bengal deserves special mention in this regard as it is the first large state in the country to declare zero percent sales tax on ATF at its regional airports and 15 percent sales tax on ATF used by additional flights at its metro airport in Kolkata.
The report stresses that a lot more needs to be done given that several tier two and tier three cities are still unconnected or underserved. It suggests measures such as relaxation on regulations, revising the security requirements, allowing domestic code sharing, providing free or discounted utilities and connecting infrastructure.
Seeking the immediate setting up of the proposed Essential Air Services Fund by the Ministry of Civil Aviation, the report says that implementation of the measures suggested for improving air connectivity will have a multiplier effect in terms of higher growth of local economic activities, tourism and employment.
“India is blessed with a great geographic location, a large upwardly mobile middle class and immense tourism opportunities. We have just touched the tip of the aviation iceberg. The beauty is that our challenges are primarily related to policies, procedures, regulations and taxes. These are all man-made problems and hence surmountable. The central government and the eastern states have brought in many reforms in the aviation policy, procedures and taxation. We hope this trend continues,” says Amber Dubey, Partner and India Head of Aerospace and Defense at global consultancy KPMG.
According to the International Civil Aviation Organisation, an additional dollar invested in air transport leads to a benefit of around three dollars to the local economy. Moreover, every additional job created in the air transport results in creation of over six new jobs.
As per KPMG estimates, the total manpower requirement of airlines is estimated to rise from 62,000 in FY-2011 to 117,000 by FY-2017. It is estimated that the sector, overall, will need about 350,000 new employees to facilitate growth in the next decade. Shortfalls in skilled labour could create safety issues and may see increase in staff salaries, hurting India’s cost competitiveness.
India’s current MRO market size is estimated to be around $ 700 million. By 2020, the total Indian fleet is expected to double in number, making it critical to have a strong domestic MRO industry.
The report concludes that in order to become one of top aviation markets globally, India has to recognize the untapped potential of the sector and initiate measures for all round improvement, in airports, air navigation, cargo, MRO, general aviation and human resource development.